Lawsuit challenges consumer protection bureau

A Texas bank and two advocacy groups say the Consumer Financial Protection Bureau has too much power and lacks oversight.

As the Supreme Court prepares to rule on healthcare reform, a new lawsuit is taking aim at another of President Obama's signature accomplishments — creation of the Consumer Financial Protection Bureau.

A Texas bank and two free market advocacy groups are challenging the constitutionality of the agency, which was the centerpiece of the 2010 Dodd-Frank financial reform law. The suit alleges that the agency was given too much power and that President Obama's recess appointment of Richard Cordray as its director was unconstitutional.

The suit also challenges the law's creation of a panel of regulators, the Financial Stability Oversight Council.

The main focus of the suit is the consumer bureau, which has been strongly opposed by many financial and business groups, as well as most Republicans in Congress. They have argued there is little congressional oversight of the bureau because it gets its funding directly from the Federal Reserve and not through the appropriations process, and its independent director is largely unconstrained by the White House or the courts.

"There is no example that any of us can find of any aggregation of such power in the hands of an un-elected bureaucracy free of any kind of constraints by any of the branches of government," said C. Boyden Gray, the lead attorney in the suit.

"If you're a poor beleaguered financial institution …and you are set upon by this bureau, you have no access to the democratic system — to the White House, the Congress or the courts — to appeal what's happened," said Gray, who was White House counsel to former President George H.W. Bush.

The suit was filed Thursday in U.S. District Court in Washington, D.C., by the State National Bank of Big Spring, Texas; the 60 Plus Assn., a senior citizen advocacy group in Alexandria, Va.; and the Competitive Enterprise Institute, a Washington, D.C., public policy group. The bank said it already has been harmed by new bureau regulations requiring the disclosure of fees for remittances sent to foreign countries. The regulations are so burdensome the bank has stopped offering the service to its customers, the suit said.

The White House said it would oppose any efforts to hinder the bureau's operations.

"The president fought to put into law the strongest consumer protections in history, and he will continue to fight any effort from our opponents to weaken the CFPB or water down its ability to protect middle-class families," said White House spokeswoman Amy Brundage.

The suit says Congress violated the Constitution in granting the consumer bureau broad powers over any financial products or services it deems "unfair, deceptive or abusive," a term not defined in the law.

In addition, the suit alleges that Obama's January recess appointment of Cordray as director was unconstitutional because the Senate was not in a recess. Backed by a Justice Department opinion, Obama said that the Senate's short pro-forma sessions were masking a de facto recess and were designed to prevent him from filling key government jobs.

The suit seeks to overturn the creation of the consumer bureau and the financial oversight panel, as well as to prevent Cordray from using any of the powers of the director's job.

Cordray's controversial appointment was expected to spark a lawsuit. The agency needed to have a Senate-confirmed director to exercise many of its most important powers, such as oversight of mortgage brokers and payday lenders.

Nearly all Senate Republicans vowed to block confirmation of any Obama nominee unless the president agreed to water down the bureau's authority. Obama would not agree to any changes and Cordray's nomination was stalled for nearly six months. The recess appointment allowed the agency to function fully.

Jen Howard, a spokeswoman for the consumer bureau, said the lawsuit "appears to dredge up old arguments that have already been discredited."

"We're going to keep our focus on the important work Congress created us to do — making markets work for consumers and responsible providers," she said.

Jonathan Turley, a constitutional law expert at George Washington University, said the suit had a good chance of overturning Cordray's appointment.

"Presidents have gradually expanded their claimed ability to appoint officials during recesses to the point that it's become perfectly absurd," he said. Turley believes Cordray's appointment was unconstitutional and the suit could work its way to the Supreme Court.

The challenge to the consumer bureau more broadly is another question, he said. It's rare for courts to strike down an office or agency created by Congress.

"The courts tend to leave these questions to the political process to work out," Turley said. "I think they have plausible arguments, but the advantage on that question still rests with the administration."

The suit also says that the Financial Stability Oversight Council violates the Constitution's separation of powers Principal by giving the panel "sweeping and unprecedented discretion" to decide which financial firms are systemically important.

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